When can courts modify arbitral award under Section 34 and 37 of Arbitration Act? Supreme Court answers

A five-judge Constitution Bench of the Supreme Court on Wednesday ruled that the power of courts to modify arbitral awards under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 is limited and can be exercised only in certain circumstances [Gayatri Balasamy Vs ISG Novasoft Technologies Ltd]..The Bench of Chief Justice of India (CJI) Sanjiv Khanna and Justices BR Gavai, PV Sanjay Kumar, KV Viswanathan and Augustine George Masih held that the limited power to modify arbitral awards can be exercised in the following circumstances:a) Where award is severable;b) For correcting typographical or clerical errors;c) Post award, interest can be corrected in some circumstances; d) Article 142 of Constitution can be used by Supreme Court to modify awards to do complete justice a case before it though it should be exercised with caution.Justice Viswanathan dissented from the majority on certain issues. He held that Supreme Court cannot use Article 142 to modify arbitral award and that courts cannot modify interest post award. He stated the following: "1) Section 34 cannot modify or vary the arbitral award. 2) It is crystal clear that they cannot change or vary arbitral award as it will hit the core aspect. 3) My point in difference is that courts cannot use Article 142. 4) The other aspect I have dissented is the power to modify post award interest. It should rather be referred back to arbitrator.".Justice Viswanathan has essentially ruled that arbitral awards cannot be interfered with by courts. He has held that the Supreme Court cannot use its inherent powers under Article 142 to modify arbitral awards. He has also ruled that Court cannot interfere on the post award interest and the issue should rather be referred back to the arbitrator. .Background.In January, a Bench led by CJI Sanjiv Khanna referred the issue to a five-judge Constitution Bench after acknowledging inconsistencies in prior decisions..Section 34 of the Arbitration and Conciliation Act provides the mechanism to challenge an arbitral award in court.It sets out the grounds on which an award may be set aside, ensuring that the arbitration process remains fair and lawful.These grounds include instances where the award violates public policy, the arbitration agreement was invalid, the tribunal lacked jurisdiction or the party raising the challenge was not given proper notice of the arbitration proceedings.However, Section 34 does not allow for a review of the merits of the award. Courts have interpreted this provision narrowly, emphasising minimal judicial interference to uphold the principles of finality and efficiency in arbitration.Section 37 of the Act governs appeals against certain orders made under the Act. It allows parties to appeal against decisions such as orders refusing to refer disputes to arbitration, refusing to enforce an arbitral award or granting or refusing interim measures under Section 9.The scope of Section 37 is limited to specified categories of decisions and courts are generally cautious in their approach to avoid undermining the arbitral process. Like Section 34, it reflects the Act's objective of minimizing court interference while ensuring that justice is served in exceptional cases requiring judicial oversight..The matter first arose in February 2024, when a three-judge Bench flagged important legal questions, including whether the power to modify arises implicitly under Section 34 and whether severable parts of an award could be altered.While decisions like Project Director NHAI v. M. Hakeem and Larsen Air Conditioning v. Union of India (2023) had ruled against modification powers, other rulings such as Vedanta Ltd. v. Shenzden Shandong Nuclear Power Construction Co. and J.C. Budhraja v. Chairman, Orissa Mining Corporation Ltd. either upheld or permitted modifications to arbitral awards.In view of the same, the 2024 Bench directed that the matter be placed before the CJI to be decided by a larger Bench.Pursuant to that, the matter came to be heard by the Constitution Bench headed by CJI Khanna..Hearing and arguments.During the hearings earlier this year, the Constitution Bench heard extensive arguments from senior counsel:Justice Sanjay Kumar noted that Parliament may have "consciously excluded" any power of modification in the Arbitration Act.Chief Justice Khanna emphasized that while procedural review is generally inherent in courts, extensive intervention would distort arbitration’s finality.Justice BR Gavai remarked that if Parliament intended to expressly bar modification, it could have done so, citing other jurisdictions like Singapore..During the arguments, Senior Advocate Arvind Datar argued that the words "set aside" should be interpreted flexibly to include partial setting aside, especially where "patent injustice" would otherwise occur. In contrast, Senior Advocate Saurabh Kirpal contended that the text of Section 34 clearly does not permit modification and that courts should not judicially rewrite the statute..Senior Advocates Darius Khambata, Gourab Banerji, Gaurav Pachnanda, Shekhar Naphade and Ritin Rai presented arguments touching upon party autonomy, judicial economy and the balance between arbitration finality and limited court oversight.Senior Advocate Prashanto Chandra Sen submitted that partial setting aside of the award also amounts to modification..Solicitor General Tushar Mehta argued that the Arbitration Act was designed as a "complete code," and the conscious omission of modification powers should be respected to preserve the streamlined nature of the arbitral process..ASGs Vikramjit Banerjee, Archana Pathak Dave, Aishwarya Bhati also assisted the court in the case. Other Senior Advocates who appeared in the case include Naresh Markanda, Sumeet Pushkarna and Benny Thomas..Datar was briefed by Advocates Payal Chawla, Hina Shaheen, Mukunda and Nishanth Patil..Kripal was briefed by Manmeet Kaur (Partner), Debmalya Banerjee (Partner) , Rohan Sharma, (Principal Associate) and Gurtejpal Singh (Senior Associate) from Karanjawala & Co..Pachnanda was briefed by advocates Garima Bajaj, Mohit Goel, Sidharth Goel, Raghavendra Mohan Bajaj, . Karmanya Dev Sharma, Aishna Jain, Shashwat Mukherjee, Ishaan Pratap Singh, Nikita Jaitly, Siddharth Kapoor and Shreya Bansal from Sim & San. .One of the intervenors was represented by Saket Sikri briefed by Naman Joshi, Ritika Vohra, and Ajay Kullar..[Read Judgment]